FOOD FOR THOUGHT
A Review of Chasing Dirty Money: The Fight Against Money Laundering
by Joseph D. Douglass, Jr.
May 29, 2007
Food for Thought
Organized crime and drug trafficking, the two are joined at the hip, along with their life blood, money laundering, is probably one of the most critical problems or threats we face in the United States, but also by all other peoples of the world. Why, is clearly evident in this short, clearly written book, especially when augmented with a few statements from the US International Crime Threat Assessment report of December 20, 2000. Simply stated, the amounts of monies involved have approached unbelievable levels, even the minimum bounds, and the implications, especially the corruption of high-level officials around the world, are correspondingly horrific.
Chasing Dirty Money begins by teaching us that all estimates of criminal money laundering (more politely described as the underground economy) are grossly inaccurate. After carefully studying a wide range of estimates, the authors conclude that these estimates are probably only within a factor of ten of what the real numbers are. Given the nature of the operations and associated secrecy, good data (or easily obtainable good data) are scarce. Not withstanding this imprecision, however, the numbers are such that one can still easily appreciate how truly serious the problem is.
The authors begin with macro economic estimates of the size of the underground economy. These are indirect measures that they see as roughly equivalent to upper bound estimates. They focused on the time from 1989 to 2001. The estimate they put together applies to only 21 countries: the United States, Canada,Great Britain, Ireland, Scandinavia, most of the Europe, Japan, Australia, and New Zealand. They evidently were unable to gather data from the rest of the world, particularly Eastern Europe, Russia, China, Hong Kong, Singapore, Israel and the Middle East, Africa, all of Latin America, Luxembourg, Liechtenstein, and all the famous "off-shore" islands. These excluded countries are almost all regarded as major money laundering countries.
Their estimate of the upper bound for the 21 countries in 2001was $3.4 trillion. This suggests that the upper bound - without considering all the excluded money laundering havens, would be closer to $5 trillion today. It is unfortunate that the authors did not take that final step and offer their educated guess what the estimate would be if all the excluded countries were included. It is unfortunate because the totals for the 21 countries are in the ball park of prior estimates where there is no allowance for excluded countries, thus making it easy for the reader to not recognize how much higher than prior estimates this new estimate is. While the macro estimates have their problems, they have one major advantage over micro estimates, that are based on individual data for various crime categories and, hence, next to useless because to really do a good job, one has to dig into the who, where, what, and how, which is risky to one's life and livelihood. Given the nature and reputation of the excluded countries as money laundering havens, it does not seem unreasonable to expect the total to rise by a factor of two or three or even more, thus bringing a more global estimate to $12 to $15 trillion. Moreover, this is just the money laundering part of the underground economy. The total revenues would be still larger, perhaps 30 percent larger, bringing the total criminal revenues up to the vicinity of $15 or $20 trillion per year.
How one accounts for monies from hidden activities not yet included in the list of crimes is another question that can raise the total still further. The list of "crimes" has been growing as the research into prevention, still skimpy and lacking, proceeds. As new improper or fraudulent activities and incomes are identified, they are quickly added to the list of components, with some important exceptions, one can surmise, that are politely side stepped because of the implications to the global financial and political systems. Some of these exceptions, by the way they are hidden, are also unlikely to be part of the indirect (macro) estimates. In a sense, it is a shame not to have the thoughts of these author experts. These implications must have been part of their thoughts over the course oft heir research.
Their study correctly identifies the United States as being one of the top money laundering countries in the world, mainly because its economy is so large. This statement, in my opinion, is also incorrect insofar as it ignores other serious factors, the presence of so much money has lead to the current situation in which there is almost no oversight in Congress, no accountability (especially at high levels) in Washington DC, lots of rhetoric but little honest concern for the national interest, and an increase in focus on spin to the detriment of substance, honor, and integrity. As a general rule, using the macro economic approach, the amount of money laundering taking place in the United States they estimate at $800 billion or 8.7 percent of GDP. If we add the portions of the criminal revenues that are not laundered to this estimate, the upper bound of the total revenues rises to over $1 trillion.
Micro economic estimates, which attempt to add together the monies associated with major organized crime categories, are lower than macro estimates, among other reasons because the data are so poor and because of the related risks identified above. We are told they tend to run in the 2 to 5 percent of GDP range. Such percentages may make sense in the case of nations with diverse economies, but they would hardly apply to small countries where money laundering may be a major component in their GDP, which may just be why many of the countries excluded from the macro estimates are not enthusiastic supporters of strict anti-money laundering (AML) regimes and why good data are not available from them.
Their estimated lower bound for money laundering in the United States is $400 billion. While enormous, this seems too low insofar as this would mean that illegal drugs with revenues over $200 billion were close to half of organized crime, which seems like too high a contribution, meaning the total is too low. The problem here may be a consequence of the official estimates of illegal drug revenues, which have generally been gross under estimates because of the assumptions used in the estimating process. It is clear that the authors do not understand the illegal drug problem. Otherwise, it would be hard to explain one of their recommendations, which is to require an annual report to congress for money laundering that is comparable to the State Department's narcotics control annual statement, which traditionally has been politically contrived (bearing in mind Customs Commissioner von Raab's statement in 1989 when he left office that the State Department was the United States, "conscientious objector in the war on drugs").
Chasing Dirty Money is additionally valuable because it provides useful introductions to a number of important subjects, including 1) money laundering methods, 2) anti-money laundering (AML) regimes, 3) combating predicate crimes, 4) protecting the financial system integrity, 5) combating the "public bads," and 6) suggestions for improving the money laundering regime. These sections are good because of the realistic approach the authors take in laying the basis for questioning the value of AML initiatives. This is approached from a US perspective. Their conclusions here are the most eye-opening findings in the study. For example, in the United States, the number of money laundering convictions averages less than 2000 per year, and these are mostly associated with sums less than $1 million. This is out of an estimated 30,000 money launderers. This is similar to trying to fight the war on drugs by arresting street peddlers. It does not matter how many you arrest, there are replacements waiting in line to replace those incarcerated. As for the seizures and forfeitures, they averaged less than $700 million out of a total that is 1000 times larger ($700 to $1,000+ billion) - hardly enough to even be called a pittance.
Continuing, to achieve this dismal record, the U.S. federal government is now spending annually $3 billion for so-called prevention and $37 billion for enforcement, for a total of $40 billion to convict under 2000, mostly small time, money launderers. On top of this, we need to add to the $40 billion the federal government spends, the costs to the private sector, which are certainly non-trivial. The activity is not cost effective - not by a long shot. The impact on discouraging the criminal activities that generate the illegal revenues is as small as the seizures and forfeitures; thus one is hard pressed to claim its value lies in its criminal deterrent impact. All that the AML laws and efforts have accomplished is to cause money launderers a small measure of inconvenience and need to keep changing their methods while giving rise to a very lucrative $40 billion cottage industry for lawyers and accountants.
Moreover, the authors, while identifying recommendations for improvements, were hard pressed to find any that would realistically hold promise for achieving any significant improvements. And, with respect to combating the "public bads" - terrorism, corruption/ kleptocracy, and failed states - each is so individually complex that AML regimes, the authors explain, can only contribute modestly to combating it. For their capstone in this scathing indictment, the authors state that the elaborate system of laws and regulations costing billions of dollars has been based to a substantial degree on untested assumptions that do not look particularly plausible.
The question of combating global "Public Bads", raises another set of disturbing questions. This chapter in the book addresses the problems of terrorism, corruption/kleptocracy,and failed states. Unfortunately, the nature of the problems here is what makes organized crime and money laundering such a critical problem. The problem goes beyond complex and enters the region of very politically sensitive, which may explain the superficial treatment they are given in the book. This problem is characteristic of many attempts to deal with these "public bads," especially the corruption/kleptocracy aspects, beginning with an important question: Who are the crooks? - the 30,000 money launderers (and their clients) in the United States engaged in moving around a million here and a million there? What about those who are engaged in moving not millions but many billions and in such a way that it all seems legal.
This is where it is useful to bring into play a few statements on the nature of the threat in the 2000 US International Crime Threat Assessment. These passages all focus on the massive corruption that creates the friendly environment in which organized crime can grow and propagate - that is, an environment in which there is no accountability. Consider, the following quotes:
- Criminal groups cultivate and rely on corrupt political elites, government officials and law enforcement and security personnel to protect their operations and to provide cover.
- Criminal groups are the most successful in corrupting high‑level politicians and government officials in countries that are their home base of operations illicit proceeds are used to finance political campaigns, buy votes, protect their operations, influence legislation, gain insider access, and preempt prosecutions.
- International criminals spare no expense to corrupt government and law enforcement officials in foreign countries that serve as their bases of operations or as critical avenues for trans shipment of drugs, arms, other contraband, illegal aliens, or trafficking in women and children.
- Most organized crime groups have been enormously successful in their illegal ventures because they have successfully corrupted those persons charged with investigating and prosecuting them. In fact, some of these groups have so thoroughly and utterly corrupted those officials that it is no longer possible to distinguish between the two.
- Corruption remains an indispensable tool of the criminal trade: criminal groups corrupt society, business, law enforcement, and government.
- International criminals are attracted to global finance and trade. They are able to avoid scrutiny because of the importance to businesses and governments of facilitating commercial and financial transactions.
- International criminal organizations use financial experts (some trained in the world's best business schools) to identify new money-laundering mechanisms, to manage investments, and to establish fronts that can be used as covers for smuggling and fraud schemes.
- Huge sums of money are laundered in the world's largest financial markets--such as Hong Kong, Japan, Germany, the United Kingdom, and the United States.
- Lawyers in their pay have used detailed knowledge of the law to manipulate the judicial system and to influence law enforcement legislation to protect criminal interests in countries around the world.
The two messages in this threat assessment are that the problem is gigantic (beginning with the monies involved) and that it is the corruption of the elite that is the indispensable tool. That is, corruption/kleptocracy among and within:
- Government Officials and Politicians
- Investigations, Law & Order, and Intelligence
- Banking and International Finance
- Investment and Financial Planning
- Top Law Firms and Lawyers
To state this in a more succinct and direct manner, organized crime and big money laundering operations have been enormously successful and have grown so gigantic because they are politically protected by exactly those people and institutions that are supposed to be engaged in combating them. Moreover, how can the law enforcement apparatus be effective when it operates under the direction of the crooks and is itself also corrupted? Accountability is for the small fries. In considering the nature of the corruption, which most reports explicitly see as a consequence of the large amounts of money available, this conclusion is drawn too easily. Money is an incentive, but it also leaves a trail. Additionally, many people are as motivated by power, positions, and promotions as by money and the former are more important in the long run and harder to tie in as a quid pro quo, especially when someone else in the network makes the decision on positions and promotions - power - and there is no paper trail.
The explicit message in Chasing Dirty Money is that a mass of laws and procedures is as complex as the money laundering itself, and little has been or will be accomplished. Less explicit (almost non-existent) is the nature of the problem being addressed, which in this study come across as the small time operators and three or four banks, only one of which was dealt with harshly. And then, only by luck. This refers to the common example, BCCI - known before its demise as the Bank of Crooks and Criminals International. Congress stopped its investigation after the appropriate campaign donations were received. The Feds took no action. The BCCI was brought down only after the key staffer took the data, carried it up to New York City, and laid it on NY District Attorney Morgenthau's desk. But, 2,000 money launderers getting caught by dealings in millions of dollars is unlikely to add up to a trillion dollars. Does corruption/kleptocracy at the government, executive, and state level, even enter into the AML considerations. Not likely, because of the political sensitivities. There is no discussion of investigations of top level corruption being deliberately derailed by the heads of investigatory agencies or those above and how these activities play in the AML regimes/activities.
This issue is so serious it warrants a few explanatory remarks. What happens when most of the political system at the upper echelons has been corrupted? Or, in the extreme, when the political system is itself much like an organized crime family? Is that what we are approaching today?
To place this in perspective, consider The Black Book of Communism, which is a study of the crimes of communism conducted after the self-destruction of the Soviet Union in1989-1991. The researchers that produced this study concluded that the record of Communist governments was the most colossal case of political carnage in history, far, far worse than Hitler's Germany.
The dry academic book, first published in France in 1997, became a publishing sensation, the focus of an impassioned debate. But, it was not the magnitude of the Communist tragedy that was news but, rather, the fact that the truth should come as such a shock to the public at this late date.
The problem is that there had been maintained (and still is) a silence respecting the crimes of the Soviet Union (Russia): Knowing the truth about the U.S.S.R. has never been an academic matter. . . Revelations concerning Communist crimes [among the intellectuals and politicians] cause barely a stir. Why is there such an awkward silence from politicians? Why such a deafening silence from the academic world regarding the Communist catastrophe, which touched the lives of about one-third of humanity on four continents during a period spanning eighty years?"
If the crimes of these nations are "out of bounds" insofar as investigations are concerned, and their debate, how can they be considered in the discussions of AML regimes and accomplishments? Obviously, they cannot, and there is not the slightest suggestion in Chasing Dirty Money that the authors were even aware of the problem.
Because of this silence there is almost no awareness of the criminal conduct - especially crimes against nations other than their own - of the Communist states operating as states, with all the assets and resources of the state available in their organized criminal pursuits. Why this is so important, or should be, to Chasing Dirty Money is that in 1955, international terrorism, drug trafficking, and organized crime became strategic state intelligence operations run by the Soviet/Russian intelligence services.China and the Soviet Union, especially the Soviet Union, are the grand daddies of today's international terrorism, drug trafficking, and organized crime, and, along with these operations, the wholesale corruption of people of power and influence around the globe. In these operations, the money laundering was organized - not by the KGB or GRU, but, rather, by the respectable leaders in international finance,which existed as a partner, not victim, of the chief crooks. Because the operations were, in effect, politically protected, as evidenced in part by the "silence," one would be most naïve to assume they ceased in conjunction with the changes of 1989-1991. The operations were simply too valuable. Why stop them anyway since no one (e.g., the media, politicians, government officials, intelligence experts, pundits in various policy centers) can be said to have raised even a minor stink about them for over 50 years.
As one reads through the material in Chasing Dirty Money on terrorism, corruption/kleptocracy, and on the AML regimes, it is easy to conclude that the AML efforts have evolved with their focus on the little guys, the street crimes, with no sustained effort focused on the global elite, governments, and international finance/banks, which may be where the lion's share of the attention should be focused.
Nor is there any discussion of all the cases where investigations were shut down or neutralized by directions from those higher up in the government bureaucracy or any number of people with power and influence. It would appear that even Presidential pardons have had this effect. Consider also certain activities of the Federal Reserve in enabling the shipment of tons of U.S. 100 dollar bills to Russia, for example, via the "money plane" every week (circa 1994) as revealed in the organized crime and money laundering investigations of Robert Friedman" or the shipment of 353 tons of 100 dollar bills to Baghdad, subsequently unaccounted for, to help spur on economic redevelopment. What good are all those 100 dollar bills with no small bills and change to go along with them? Has no one recognized that 100 dollar bills are the staple of international organized crime - unlike economic reconstruction - and that that might be the ultimate repository of all these shipments and giveaways? Or, consider one of the techniques for laundering money that the Czechs used was, in cooperation with the largest West German banks, to design bogus public works projects as covers for the shipments of large sums of money.
So long as there is no real accountability or oversight, those who understand the system and have been taught that the system is a tool to be exploited in their rightful interests, the system will be exploited. To identify candidates, just look where accountability is well under control of inside elites or non-existent, as for example in the case of foreign aid, or intelligence (there is no effective oversight), or highly classified sections of national security, or the Federal Reserve, or the White House itself.
Ten years ago, an official from Europol intelligence in a talk on the problems they faced made the following points:
- Drugs are corrupting the youth
- Political corruption is exploding
- Illegal money is corrupting the legal and financial systems
- 15to 20% of dirty money goes into the stock market crooks will soon control the financial markets
- European organized crime has more money, better lawyers, better technology, and better political support than Europol.
- The biggest problem is Russian organized crime.
- This problem can no longer be defeated with legal means.
In the latter point, the speaker was not advocating the use of illegal weapons. He was only recognizing the consequences of growing political, government, and elite (news media) corruption where the corrupted holders of the reigns of power also can control or manipulate the levers of justice. The problem can not be defeated with legal means when those means are in the hands of people who are among those who are "the problem" or beholden to them.
The money laundering problem may not seem as such a critical issue that would put it ahead of nuclear war and terrorism in terms of the problems it presents, but perhaps this is because the continuing reign of political correctness prevents us from examining the full nature of the problem and what is happening to all governments as a consequence. Indeed, given the nature of the participating elite, might it be that wars have been encouraged to provide diversions and covers to enable massive economic shifts and societal changes, such as entry into a new world order, without the public being aware of what was really happening.
Why Chasing Dirty Money is important and worth your time to read and consider is because of the almost unbelievable size of the monies involved, the related massive corruption of the world's elite, the careful look at the AML efforts, the absence of a satisfying explanation respecting the reason the AML regimes have and will continue to be ineffective, and the absence of any serious talk about governments, large state intelligence activities, and global corruption/kleptocracy and its political protection. Most important is the need to begin asking questions and engaging in an informed debate in which the participants are not restricted by concerns of political correctness or their livelihoods should they dig in the wrong places and too deep.
Unfortunately, this is reality. Get the book and enjoy reading it slowly. It will wake you up to what the authors call "the dark side of globalism."
Joseph D, Douglass Jr.
 Former DEA agent Michael Levin's two books, Deep Cover and Big White Lie are filled with examples of investigations that were trashed right at the time when the next step was indictments and prosecutions.
Stephane Courtois et. al., The Black Book of Communism (Cambridge, MA: Harvard University Press, 1999), p. xii.
 Ibid, emphasis added, pp. 17-18.
This is described as Gen. Maj. Jan Sejna, a top Czech Communist
official told the author of this paper in Joseph D. Douglass Jr., Red
Cocaine: The Drugging of the West (London and New York: Edward
Harle, 1999). See also "Drugs, Russia, and Terrorism,"
Part 1, http://www.newsmax.com/archives/articles/2002/3/7/212349.shtml
Part 2, http://www.newsmax.com/archives/articles/2002/3/10/222920.shtml,
"Russian Organized Crime and Financial Markets," http://www.newsmax.com/articles/?a=1999/10/12/63024.
 Not just money, but equally important the massive compromise and corruption blackmail and extortion files. These files, tens of thousands of them, were a major by product of this operation and in many respects considered more effective than money in pursuing future influence operations.
 See Robert I. Friedman, "The Money Plane," New York Time,s 22 January, 1996.
© 2007 Joseph D. Douglass,
Joseph D. Douglass, Jr., Ph.D., is a defense analyst, author of The Soviet Theater Nuclear Offensive and coauthor of CBW: The Poor Man's Atomic Bomb and America the Vulnerable: The Threat of Chemical and Biological Warfare. His most recent books are Red Cocaine: The Drugging of America and Betrayed: The Story of America's Missing POWs.